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Dambisa Moyo Education. (2011) Dambisa Moyo ('How the West Was Lost Fifty Years of Economic Folly - and the Stark Choices Ahead.') Hosted by Dan Mitchell, Cato.

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China 43, United States 34, U.s. 20, America 19, Europe 17, California 9, Africa 6, Singapore 5, Washington 5, Britain 5, Sweden 5, India 3, Denmark 3, Scandinavia 3, New York 3, Germany 2, Illinois 2, Mexico 2, Brazil 2, Us 2,
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  CSPAN    Book TV After Words    Dambisa Moyo  Education.  (2011) Dambisa Moyo ('How the  
   West Was Lost Fifty Years of Economic Folly - and the Stark...  

    March 21, 2011
    12:00 - 1:00am EDT  

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sponsors and speakers. [applause] >> the people reloaded is published by millhouse. to find out more about the book and its contributors, visit mhpbooks.com. ..
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>> i'm dan hitch l here to talk with a best selling author about her new book, "how the west was lost." welcome to the program. >> guest: thank you very much. >> host: the west is being overtaken by the east. give us the nos shell explanation. >> guest: it's interesting. this bizarre time in society was almost obsessed with what's going on in the east and china and the other places. of course, it's fascinating, but my book is really about the
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errors made here in the united states and europe. it's a home-grown program on policy nothing to do with china, things like education, all the structural problems like infrastructure and energy problems that have nothing to do with china and essential to get right to make sure the u.s. and european countries are back on track. >> host: it's like a couple different books in one book. there's the story of the decline of the west, the rise of the east, and the basic premise of the lines are going to cross. >> guest: you can argue there's an absolute part for sure talking about the west in isolation and what the issues are going on there, and then, of course, we live in an amazing time of china and other emerging economies have done the unthinkable, moving hundreds of thousands of people out of poverty. of course, that's answering the ire relative question as well which is what i've done in the book. >> host: let's start by talking about what's going wrong in the west. >> guest: sure. first of all, i think it's
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really important in terms of context of my work, entalk about unintended consequences, good intentions, but yields bad outcomes. what i've done in the book is focus on the three key ingredients. those are capital, basically money, labor, which is basically the work force, and then finally, productivity, how efficiently you can do stuff. what i'm arguing here is really to provide a catalog of the policies that have been instituted in the united states and across europe in 50 years that led to the erosion of the three key ingredients that drive the growth. very simply, and to give an example, the idea of housing for all, housing policy for all which is a mainstay of american policy both republicans and democrats. it sounds like a great idea. everybody wants shelter over their heads, but in principle, the matter of which-executed is
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bad. the idea of keeping rates low, a policy of subsidies and guarantees have clearly endeuced behaviors led to the subprime crisis. >> host: when you talk about what we've done wrong in america and other western nations as well, part of it is we live for today. we consume. we go for the free lunch. elaborate on that. >> guest: yeah, i think what we're also facing in places like the united states is the competition or the sort of test between the current generation and the future generation. we have to decide whether there are going to be sacrifices which are what i'm arguing in the book, sacrifices for people today so that the united states tomorrow can remain a preimminent economic power. clearly, there were promises made, pensions is a classic example of this that a unsustainable. it's impossible to fulfill those promises and the question then becomes how much of a sacrifice
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are people willing to make today in the united states to make sure that tomorrow we can have educated, a reasonably educated public and infrastructure and so on. >> host: what happens if we don't make the sacrifice? that's your warning in the book. because we're on a wrong path and short termism and consumption attitude. >> as we know, both at the public, government level, individual level across this country and europe is financed by debt. the concerns of that is it's unsustainable. if the debt was used to cement investment, for example, we wouldn't be sitting here. there would be productive investments coming out of that, but we have a very different situation. what could happen? well, i think europe is a example of what could happen, unsustainable budgets, lead to bailouts. i was just in california, i mean, serious concerns on
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infrastructure there, but also very fundamentally their budget deficits with furloughs and those types of things put stress on the economy. that's where you are heading if you don't solve these difficult problems. >> host: in other words, in your book, if we don't fix things in the united states and also other countries as well, grief is our future? >> guest: well, i thinkst evident. i think what people perhaps don't appreciate, although coming from a very different background, the fact of the matter is an increase in equality, and people will be frustrated they have to work longer than anticipated. the government will not be able to continue to finance all the programs that its promised to, and all of that leads to an unwind and leads to many more labor disputes, issues around the government's ability to finance things like infrastructure, like education, like energy policy, and that's where, i think, i'm afraid you would lead to. >> host: now, how much of this
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is demographic? solely just the result of a big baby boom generation retiring and a one-time spike in cross for an elderly population or something more systemic in our troubles? >> guest: well, i think there's a lot of things demographically linked. clearly, even the property boom, the prices going up was clearly supported by a baby boomer who were willing to pay for housing, but and obviously looking ahead issues around pensions and health care are very strongly linked to the issues of demographics, but i think there are more cystmatic -- sismatic issues. the fact the united states went from being number one in college graduates to number 12 is problematic for america's ability to compete over the long term. if you look at the oecd, the organization of economic cooperation and development
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studies, they have a study called pisa study. if you look at the performance of american students in mathematics, sciences, and reading, they slid from being in the top one to three to the 20s and teens and twenties. that's problematic, especially more america's competitiveness. the fact america has 30-50 million people out of work in the manufacturing sector when we know there's people are not competitive globally on a cost basis, again, it's not something necessarily linked to demographics, but about competitiveness. that's a concern. >> host: talking about pensions, there's many piece ease to that. there's federal government social security program, there are underfunded pensions in the private sector, and then, of course, seeing this with the debates in the u.s. states, huge underfunding of the pension promising state and local workers. do you distinguish between the three types that are worse than
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the others? >> guest: i've written a lot about this. i think the over arching is that the promises are unsustainable. in finance, it's out of money options, options not being able to be paid. we've seen in the private sector whole industries that have basically hit bankruptcy because of the pension problem whether it's the airline sector, steel sector, or the auto sector. we have seen the implications of that. at the state level, california, classic example, they have furloughs now where people are forced not to go to work because the state doesn't want to accrue additional liabilities. clearly, this obviously feeds up into the federal level, so i don't distinguish, and, of course, in terms of numbers and what it looks like, you can look at what the overall liabilities are. the main thesis of the thread running through all of this are promises that are not able to be paid. >> host: now, talking about promises not being able to be
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paid. at some point, if you're california, when do you become greece in the sense and investors decide we don't trust california anymore. we're not going to buy their bonds. you can still -- california can issue debt at reasonably low interest rates, but greece already reached the point where they had to have a bailout, portugal is teetering on the edge with high interest rates, when does that happen to california or illinois and to the federal government? >> guest: yeah. i think that the one thing that i'm constantly reminded of is politics tends to bail out these situations, and california is -- although it's a state, it's not stand alone in the sense it's part of the united states of america. they have a common currency, so the implications are far more reaching than just california having problems in itself. the federal government would not have missed that as a point, so whether or not california will get bailed out, i mean, i'm certain that somebody will come to the rescue, but that sort of
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doesn't preclude your issue. if interest rates rise, which we're seeing between september and now, the tenure interest rates went up by 100 basis points, there's a lot of pressure on debt and interest payments. those pressures tend to force not just states, but also governments to a situation where they are not able to make payments and they have to make tradeoffs with public spending for example, and i think we're seeing it now. the fact you're talking about illinois, you're talking about ohio, i mean, these pressures from the public sector laying off of teachers in new york and other places across the united states, those pressures will actually rise if you cannot solve your interest rate problem in the fact you do have to pay back money, especially in an environment where interest rates are moving up. >> host: what you're saying, the fight we're now seeing in se wisconsin between the government employee unions and the state legislature and governor, that's going to be repeated all across
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america? >> guest: well, the specific issue there is collective bargaining as we know, but i think it is reflective of a greater problem in the united states which everybody knows which is that many of the states and the federal government is simply too debt -- too indebted and haves massive deficits. those things together means something has to give. there's debate about cutting spending and more happening on the tax side, and it's problematic. the united states already corporate taxes is around 35%. this is much higher than the oecd average which is usually 25%. a friend of mine from denmark remarked recently how it's surprising because in denmark as we know, income tax at the private level is higher. it's 50%-60% tax places, but at the corporate level for corporate taxes to be lowered in a place like scandinavia and denmark is quite surprising. i mean, the united states really built on the idea of private
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sector, innovation, and incentives, so it is, i think, really a signal just how bad things have become, but the fact of the matter is there's going to be a mix of tax rises plus budget and spending cuts in order to get out of the situation. >> host: it is magazine. every -- it is amazing. they have lower interest rates by significant margin. more than 10 percentage points. back to education. you pointed out the u.s. used to be at the top or near the top, and now we're, what? 31oecd in the country? down around 20. we spend per pupil more than any country other than switter land -- swit diserland. >> guest: this is the point. it's not about quantity of money. it's about the quality of education delivered, and i have to say having spent a lot of
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time reading up about the american education system and listening to experts who focus on the education system is really reminding me a lot of the eight sector, the aid to africa, and two things in particular. one, people are rewarded for poor of performance. it's clear if america education is going down and you have these last in, first out policies getting rid of teachers regardless of performance, bus because they came in last, to me, that's some dislocation there. the other thing is that we are as a society essentially being held hostage by up vested -- invested interests, teachers union specifically. i think it's problematic we sacrifice our children's education and performance and their ability to compete internationally and the ability for america to compete in the interest of teacher's unions. there's nothing, you know, inherently wrong with that, but
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something particularly sort of wrong with the idea that we as a society can see that education scores are going down, but not punishing people for a lack of delivery. >> host: is the problem structural though? we talked about how the u.s. has higher corporate tax rates than europe which surprises people, but also in europe, you find more school choice. in sweden, huge school choice system nationwide. netherlands has substantial school choice and germany does too. we have a few tiny programs in few cities and states. is that the solution? do we need a competitive model putting parents in charge over teachers? >> guest: you need parents much more involved. what can we do to make them more involved and ensuring the slide doesn't happen? i'm not too sure whether it really boils down to the idea of more or less choice. if you look at the education performance across europe, they, too, are seeing a backslide. you know, certainly on these
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oecd standards. if it was about choice, you wouldn't expected them to be with the united states sliding down. one the things i talk about in my work that, you know, possibly is worthying about is the transfers. very simply put, very popular in mexico and brazil and rolled out of the pilot program by mayor bloomberg in new york is the idea of paying people to do the right thing. your child goes to school 98% of the time, good record, you get $100. you get immunized for diseases, you get $100. there's a discussion now in europe about whether people should get paid so their children goes to study mathematics or science, the things the united states and european countries need to compete and remain competitive. obviously, this is not what we expect of the society. do we need to pay people to do the right thing?
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these are given where the societies are, everything to me is on the table. things are fascinating with the idea of transfers as a one plausible solution to the problem that we're seeing now. >> host: could some of the problem whether we're talking about education or any of these other areas be the fact that once countries become rich, they get lazy? >> guest: well, i hope not. i don't subscribe to that at all. singapore last year was the fastest growing economy on the planet. it had about 15% growth, gdp growth. i mean, that is really mind boggling for a country that is really close to western standards, in fact, western standards of living and per kappa income basis we shouldn't expect to see those rates of economic growth if we believe what you said. it's not that at all. the reason i wrote the book is because i really believe perhaps a lot of americans don't understand what the problems are in the economy. you see a lot on television and the press about big deficits and
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massive debts, but i don't think as a practical initiative people understand this is really a fight for the soul of america. not only for america, but the world. there's going to be 9 billion people in the planet in 2050. we absolutely need to get it right. we need america to help solve some of the big problems around resources, a lack of water and land and issues around energy. the united states is great at solving these problems. we're not going to rely on the u.s. if you don't have education. >> host: you mentioned singapore as an example of a rich country growing rapidly. what are they doing right that the u.s. is doing wrong, and actually let's broaden that question a little bit. you talk about how the west was lost, but presumably not all western nations are the same. some are probably doing okay. some are going in the wrong direction at a faster rate. what are some of the differences between the u.s., between europe, inside europe, why are those countries different than singapore or say hong kong, that
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seems to still has this rapid growth? >> well, first of all, nobody really knows, as economists, we don't have a full-map solution for all countries for sure, and i think it's, again, quite fascinating to look at the different approach between britain and the united states in addressing the financial crisis. britain adopted a very, very austere approach towards resolving its issues of its deficits and its debt. the united states adopted a very, very different approach. it's become quite fiscally lax. as we know with the qe-1 and qe2. the management environment kept interest rates low, and there's a discussion of rates rising across europe and britain. different policy stances, and obviously we don't really know how that pans out. i think going back to the fundamental framework that economists use, and by no means am i saying this is a complete picture, but, again, looking at
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capital labor and productivity, you can see why the emerging economies are actually in a good place. they that lot of money. they saved, problems and arguably saved too much, and in terms of labor, there's great dynamics in quantity and large numbers of people and quality, working hard, investing in education to get up to the scale of western standards of education, particularly in mathematics and sciences which do matter, and then in terms of productivity, places like china managed to have the highest levels of productivity. obviously, because they import technology, but they have been able to do that in very, very important ways, and these three things together are really the foundations of the enjoins of growth that we're seeing there. clearly, a very politically different environment as well where the government takes a larger lead. i think it's quite interesting to see that the government actually does control the corporate environment, and they don't, many of the countries
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don't have the democracy and manner in which the united states has the democratic process. i think that democracy is something we should all aspire to, but it's clear it's not a prerequisite for economic development. you could argue having elections all the time might reward policymakers for focusing on short term things in policy opposed to dealing with the bigger structure problems that we know undermind economic growth. >> host: that was one of the things in your book that rubbed me the wrong way. it's an argument that, oh, the chinese have it better because they don't have democracy. the government can just decide something and implement it the next day whereas especially in america with separation of powers, you know, it takes a long time for something to happen, but obviously, even though democracy is imperfect, i guess what winston churchill said, it's the least.
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>> guest: nobody said get rid of democracy. within the democratic process, you have to think about how to reward, incentivize, and penalize as necessary. policymakers who don't focus on the long term structural evers and everybody knows whether you're republican, democratic in the country, there's a looming pension problem. massive concerns about the health care, serious issues around infrastructure. they're not surprised at the debts and deficit story. the question is how do we get around the table and get everyone to say, gosh, sacrifices have to be made, and then fortunately, i think policymakers have not done a good job not just in the united states, but europe as well, they have not done a good job of explaning to people what the sacrifices look like and what the real errors have been over decades. >> host: didn't you put your fingers on the problem? politicians with the next election? >> guest: it's rational. look around south america. they have democracy processes in some countries, and to processes
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mean when you're elected or the president, you have a longer term. in mexico, for example, there's a six year term. it's one term, but gives you more time to think aboutth structural problems without having the election. i find it baffling that you just had elections in the united states just a few months ago, midterms in november, and here we are already much of the discourse on television in the united states is about the next election which is next year. where does policymaker have the scope or bandwidth to focus on problems. everybody acknowledges it's there, infrastructure, education, energy efficiency, without main taping what's their big thing which is to stay in power. >> host: this isn't something addressed in the book or maybe i forgot it, but is there any evidence that longer terms or anything like that result in better policymaking? i get the feeling that if you're a poor country, you're hungry, and therefore, you're less like to engage in a short termism and
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the overconsumption, but this goes back to the point, maybe when you're rich, you're lazy, and it didn't matter if you grow 1% a year because you're already in good shape. >> guest: perhaps that argument has some credibility and prudence, but i think that clearly a lot of people in the united states are still hungry, and for that group, i think we should be worried. i think the responsibility of government are very clear. the role of government is to provide a good regulatory environment without become a strangle hold, responsibility of government is to provide public goods, things we all benefit from one nothing people want to pay for, things like a road, infrastructure. it's also important for the government most crucially to provide a policy environment that incentives -- incentivizes people to do the right thing. government being the major arbiter of labor is a good
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environment. the united states still continues to be the leader of innovation. i think the more that you put a strangle hold on the people in silicone valley or the people involved in technology already, that is not a good thing. when they see taxes at 35%, you know, given where the u.s. is right now, it is troubling because i worry because i think to myself, gosh, how are we going to solve the big problems around the world if americans may be overtime less incentivized when we need them to be on board in those areas? >> host: if you're saying we want to insent vise people to do the right thing, isn't that a high tax welfare state? you're punishing the people who produce wealth with the high tax rates and rewarding people for becoming dependent on government, and when i think of greece, i think of if you have too many people riding in the way gone and not enough people pulling the wagon, guess what happens? it grinds to a halt which in some sense is a good description
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of what's happening there. >> guest: yeah, i talk about this in the book for sure. look, the way hog the states -- how big the states should be is personal, and by that, a national decision. there a countries that like scaped knavian countries that are very successful of having some form of a social safety net, but at the same time encouraged private sector involvement and been able to -- we talked about this already, they have much lower corporate tax rates and the way they did the government providing infrastructure and all these public goods, but you pay more at the income level, and that seems to work well for scandinavia. germany has a well-defined and very designed more of a welfare state with a a small "w" than you have in the united states. at the same time, you have to figure out how to have a tax rate that works and support
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public goods, but one that's not so erroneous where people in the global market say, gosh, why am i in the united states paying 35%? i can't do business in this environment and pay health care costs and all this. i'll take my business elsewhere. it's a fine balance here. my personal discussion in the book is i think the united states does run the risk of ending up in a situation where there are too many people in the wagon as you say. it's not that there's too many in the wagon, but people who don't want to be in the wagon. they want to pull the wagon, but the policy environment is not incentivizing them to do what they want to do. and that's problem matic. >> host: i think of it as fly paper. people get stuck and are dependent. they want to climb the ladder, but policy isn't friendly. differences between welfare states. you mentioned scandinavia does it better, and that seems to be the case. looking at pensions, and in
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sweden, the age in which you can retire is actually tie to average life expectancy, so you may be on the case 20 years from now where you can't access benefits until you are over 70 whereas we read these stories about in greece professions with political power have retirement ages of 50 or 55. >> guest: lower. >> host: lower. i'm a good libertarian. if you're going to have big government, it certainly seems that sweden is much more of a model of how to do it then greece or italy. >> guest: yeah, look, there's something to be said in this last round of financial crisis, sweden did better. they had their own financial crisis in the 90s, but there is i think ultimately government has a role, for sure, but i think that it can get a bit carried away with that role. i talk about -- another example
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from the book. i don't believe that it's the responsibility of government to pick and choose which acts of classes individuals should put their money in. there's many classes, commodities, bonds, stock, cash, property, but what government has done is to basically keep interest rates low and the u.s. government over the last several decades, interest rates low, sub cities and guarantees that endeuced -- induced people to take their money. i think there's something inherently problematic with that. this idea of having dependency systems, these massive welfare systems, as somebody from africa, i can see how damages it is for a whole continent. a billion people, many, many people in africa want to work, be part of the global interconnected global society, and they don't have that privilege because of this whole culture of underminding and
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underwriting these large governments providing aid money and providing a situation where you kind of have a bloated welfare state. i would prefer to live in a place like sweden than greece. it's not surprising that we're seeing all the riots in greece and not seeing them across northern europe. . .
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the singapore government has a dating agency where it actually helps educated college-educated people to get together in the hope of producing -- >> host: match.com. >> guest: it is a singapore version of matched of calm. and if you think about it, that's sort of many people view that in a personal life but the singapore government says we are not getting a a gun to anybody'g head but we are creating anqopg environment where our educated populations can meet each othero and produce children who areqoqo more likely to go to school ando soqo on.qoqopg and so again talking about howpg big should the government bepg that is pga very good exceed ong of how they might have a small government inpo terms of theqoqo sisters but in terms of social policy i think a lot of people would recall that and do something acceptable. >> host: i think boys have been meeting goals for a millennium and somehow i don't think the singapore government
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needs to be involved. but let me go back because a few minutes ago you were talking about how we europe, and this is like the twilight zone aspect of all of this year but is much more conservative fiscally in terms of not going with the keynesian spending packages like germany how the big countries, they aren't going with the keynesian monetary policy as artificially low interest rate whereas in the u.s. it's like we've completely switched. the u.s. used to be more free market oriented but we are the ones with the so-called stimulus of quantitative easing and they are the ones being more frugal. what happened? >> guest: this is a big question and i think we will have to see who wins in the next year. my personal preference is if you can't afford it cut back your expenditure. especially if you've got issues around revenue, raising revenue. people look around the united states now and i've seen papers that argue along 45% of
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americans don't pay federal taxes already said this is an unsustainable situation. if interest rates rise, pressures of inflation the way we'll is right now, those types of pressures are going to mean something is going to have to give and the less prepared policy would make of the united states in terms of tightening the belt the more vulnerable the country is going to be to the outcomes in greece. we don't know what is going to happen in europe. to britain as an example they had a really bad quarter. and at the last year 2010, and a lot of people who believe in the keynesian economics said it's exactly what we expected to have problems on the horizon and they had inflationary, the prices have gone up. but the government has decided they don't believe it. they think of the decline in gdp was actually an aberration and they are absolutely going gangbuster focusing on this idea that we do need to tighten our
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belt and it's sustainable to have these massive and governments and productivity declines which you seem significantly in britain. i hope i live long enough to see. i have my view. i think it is unsustainable to have these massive debts and deficits and the only way they work is if somebody is willing to lend to you and the united states as we know has relied heavily on china as a lender and if china decides they don't want the united states they will have an impact and there might be others to force pensions and america to buy government debt or whatever. but politically there is something wrong with looking beyond your means and i think that the united states particularly because they were using the money borrowed for consumption as we talked about has to come to terms with that. >> host: as bad as the u.s. fiscal forecast is, it's based on low interest rates. and if interest rates go back up to the traditional levels especially if you start getting inflation its preeminent for
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inflation build in the interest rate to go to hell in a handbasket. >> guest: absolutely but everybody knows that. you can't expect them to go up 100 basis points without something having to give in your numbers. my books are an appeal to the rational thinking. people understand these types very clearly when they look at their own household incomes. the understand when one member of the family or both members of the family our parents and family are out of work. the understand what increases in the inflation with that might mean for the price increases might mean for their consumption basket. the understand what the interest rate means for the debt burden so it is essentially the same thing. and the vulnerability of the united states isn't to borrow per say. it is to first of all can she pay the interest back but second
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of all will people continue to be willing to lend to the united states? and at this point, they got away with it, but we have to wait and see what happens. >> host: but if your time and this is the story people tell me and sometimes i believe it and sometimes i don't if you are china and you have this giant portfolio of u.s. government securities, why would you want somebody to pull the rug out of the united states because you hurt yourself? it's the joke if you owe the bank $1,000 it's your problem and if you go a million dollars it's the bank problem. >> guest: china right now lending to other countries, as we know she's lending quite significantly to other countries around the world. nothing says the chinese government says to the united states you know what? we are not going to give you a short-term money any more. we are willing to live tv to give longer term but want to take on a bigger role in providing infrastructure in the united states. at some point the symbiotic relationships wheel and deal money you give something in return and in the united states
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to continue. the hid the vulnerability of one people decide alt-a hit on the chin. they could decide to offer their portfolio we've seen before moving more towards the euro and they are significantly meeting in the technology space and moving money out. they learned about a billion dollars a day just on the interest. that is been deployed in different asset classes. so you are right maybe in the short term they feel they've got the upper hand but over the long term, there's nothing that says china can't get higher return elsewhere than taking a big upon on the united states. >> host: what do you think about the assertion that china is artificially keeping the dillinger of its currency flow for trade purposes? >> guest: while i think that is a fait accompli. most people acknowledge that traditionally, china's exchanges have been artificially manipulate for trade purposes
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but just they get it. they are not blind to the issues. they're focused on the domestic demand which is a move away from this idea of the whole growth that is treated dependent. last year in 2010 not just china and india and brazil had 10% of domestic demand increases very significant focus on that. and the other thing that they've done is in october of last year in 2010 the government of a five-year plan which result of the government is planning to do. the government is focused on social programs in china to encourage people domestically to invest more in consumer goods and away from underwriting health care and things like that and so again, i think that there's much more focus on people starting to spend. i think also if you think about where china is today, there's
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serious problems. it's not the story china is going to win. we don't know on the per capita income basis if she can converge to the u.s. level. she's got structural problems are not resource allocation and a billion people that are indigent and incredibly poor but she has a lot of issues i think that to point the finger at china about artificial manipulation of the exchange rate and other words protectionism i think this kind of farcical because the united states and european countries are among the biggest leaders, the biggest protectionist countries where the culture is concerned and again as an african i find it quite interesting, and if i am in china and i hear americans fighting their finger of the chinese you need to let your exchange rate move, well america doesn't play fair with respect to agriculture more to the europeans. it's a common agriculture policy, and something about the fact you say one thing and do something completely different i believe in free trade.
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i think it's a great way to raise people's living standards and i am also sensitive to the fact many africans have lost their job and family livelihood's have been decimated because of the protection programs over many decades. but the fact of the matter is america and europe are part and parcel of the protectionist gains. and it doesn't undermine your ability to force other countries to be less protected if you are doing the same thing. >> host: let me go back to the u.s. and europe. a couple of years ago you were sort of suggesting china was beginning to move out of the dollar into the year note. a couple years ago i was very high on the euro because it seemed like the central bank was more prudent, they had only one mandate price stability versus the semi keynesian mandate of the fed to manipulate short-term economic conditions but in the european central bank basically has sacrificed a lot of its
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independence and it's doing the bidding of the european politicians by doing these backdoor bailouts and by buy in portuguese debt and the irish government debt and a body not the fannie and freddie debt, what is your take on where that's going to lead. >> guest: a hedge fund a friend of mine put it best and said when you are trading in the markets would key drivers in the decision making and he said whenever i have to deal with policy makers i always say to myself, what is it -- don't focus on what they should do. focus on what they are going to do. and by that i mean politics range. so yes, perhaps it's economists might look and say i don't want you to be keynesian i think is wrong to intervene, i think it's wrong for you to do certain things in the market to artificially with more attractive than they are. we talk about the housing market keeping interest rates low and all that. the fact the matter what they
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are actually going to do, and i completely concur with my friend because i think that he's right it is going to be the case the bailouts are going to happen and it's a political exercise way to important to the economic exercise not as important and skeptics even before the jurors came into being. general mick crystal to paraphrase him we should focus on where we are and not where we would like to be when you're in a financial crisis all of your goals may not be sort of stock. you might have to loosen up a bit and do other things and the classics of love that i think when people ask me all the time to think it is going to pick apart? if i were an economist i would say there are lots of reasons as an economist why it should break up. it is not on the same path and so on but somebody who looks at the politics and economics i
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would say it is unlikely. >> host: there seems to be a secular religion in europe that has the european centralization and the sacrifice -- >> guest: everything. >> host: to keep the year-ago a life. let me go to china and hit you with some of the things i think i would disagree with. and you actually mentioned some of these in the book. china had rapid growth for a couple of decades but still if you compare the per-capita gdp in come to the u.s. per-capita income it seems like there is a big gap and maybe in 2007 you have a figure in the book for how many decades in the future it would take for china to catch up in terms of living standards and that assumes china doesn't have a double, as a tough economic mismanagement. there is concern about china
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for's financial system being transparent and shaky. serious china improved dramatically and that is hundreds of millions of people lifted out of poverty but are they a threat? is it bad if your neighbors become rich? >> guest: you will remember in my introductory remarks i said my book is not called how china was lost from its how the west was lost. look what china is doing and we should commend them. they are poorer than many african countries 30, 40 years ago and now they are the number two largest country in the gdp basis after the united states. but you're absolutely right. this is a poor country. its number two in gdp. number 99 on the per capita income. serious issues around education and all the stuff we talked about already. and it is a long way to go. in the short term tactically they have got issues are not the proper level we talked about an inch and a moment ago serious
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issues on how they are going to actually bounce back from the financial crisis and a link to the united states considerably in terms of exporting goods and so on and so forth. as i said a moment ago the of structural problems, longer-term the infrastructure how do you move a billion people out of poverty? no country has done that so it isn't going to be strictly for china and its overlying that is the whole idea of the political environment. i think that it isn't unforeseeable that at some point at some level they might be more precious for them to have more political instability or command from the middle class. but if you put all of this aside is china going to keep growing? i would say absolutely yes looking at capitalism productivity is in their favor. is china going to grow faster than the united states? i agree absolutely well because these factors are in favor of china and against the united
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states but it's natural because the united states is much more. >> host: adis convergent -- >> guest: of course. the question is can china converge to american levels of per capita income. we don't know. we don't know whether it is possible because we have resource constraints. already we have 85 million barrels of oil a day on the planet, and the fact the matter is all we are consuming today is largely leal discovered in the 1950's and 1960's. the constraints of the land, china has about seven to 10% a year to land and 1 billion people to feed. issues are not water. look at the numbers coming out of the middle east in terms of the nation not working as well as we would hope and concerns about water, issues around energy but also are not minerals. so, can china really come through? we don't know. and that's where again the united states and european countries have to get it right to focus on these issues otherwise we know what happens
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when the resource constraints are alive and well and the end up in conflict. >> host: in other words you're not saying that the west is being lost because of china, you are saying because of homegrown mistakes as an example of a country and also you have a lot of discussion of india of countries not engaged in the consumption of short-term political -- >> guest: financing if anything. the subclass of my book is 50 years of economic folly and storch ressa is ahead. america does have stark choices to make so it can remain preeminent and it just is an anthology somebody said to me it's sort of like the green bay packers. but in order to stay there, focus on your own dynamics. make sure your team is the best it can be. if you focus on the guy snapping at your heels you can get so overly focused on what they are doing and did obligated. you lose the super bowl and i think that is the message for
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the united states. the problem right now education, the budget, china obviously plays a role in tangentially but it's not the core issue with respect to infrastructure. it's about america is doing the wrong. solve those and you will remain competitive if you don't then it doesn't matter. china might do bad things, but she's broadly on the right track and the united states is on the wrong path. >> host: it's like the joke these two guys are camping and a big bear comes over the hill. one guy starts putting on his sneakers and says you can't u.n. -- out from there. he says i don't have to outrun the there i just have to outrun you. what about, i'm sure you've heard about the theory that china will get old before it gets rich. in other words like we have the problems in the u.s. with our social security system medicare and medicaid, china i guess the one child policy they are going to have a giant bird in of the
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baby boom generation retiring and not nearly as many workers coming along to replace them. they don't have the kind of western-style social welfare state but you point out in your book that they might be moving in that direction. so, -- >> guest: big issue. if you compare china and india quite comparable in many ways the demographics are much more favorable in the midterm. i think the chinese government has made a very deliberate choice to focus on the one child policy because they were concerned about how we are going to do a billion people if we let the population continue it would be bigger than a billion people we would have to take care of or certainly provide for in the economic sense. so you are right this is one of the things they focus on. i mean, i always say when it comes to the chinese government if we are sitting around talking about it the fall we thought about it, they are already thinking about it. they are not imposing the one child policy because they hate
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children. it's clearly they are trying to get as many people off the economic ladder in the shortest amount of time and that unfortunately means with a large population they do have some issues about keeping the population stable. could it hurt them in the long term? we talked already about singapore and the idea of the government getting involved in some people call it eugenics. government getting involved in the population dynamic and the chinese are very aware of the implications over the long term. but it's one of these policy trade-offs short term versus long-term what can we do now to help people become more economically independent or to have a better likelihood it is there a trick of on the fact many people have to have fewer children? that is a tough call for them. >> host: let satchel leave your off into an aspect of the one child policy. apparently there's a big mismatch between the number of boys and girls in china and certain coleworts come and a lot of the social science stuff i
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read casually slime not going to pretend to be an expert on it and it says if you basically have lots of young men with nothing productive to do, that is a recipe for social turmoil. >> guest: >> host: does china faces some challenges if you have 20 million or 50 million but if you have a surplus of young men with no way to channel their energy in a productive way that is a recipe for bad things. >> guest: the net lease is a classic example you have a large proportion of young people, a lot of young men in particular who are disaffected, unemployed, long-term prospects for the future which you end up with what we're seeing now. i very much believe what we are seeing in libya and egypt and these countries is a reflection of the inability for the government to deliver improvements in living standards, too much poverty, too many people disaffected and i think that wherever it is if you
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have a large population of people, who are -- do not feel they are able to capitalize and get involved in the economy of growth, don't have a vested interest you will invariably end up in the political and stability. one of my concerns why i wrote about africa in my last book it's a billion people on the continent, 60% of the 24. he got to get it right and make sure these people have job opportunities to be entrepreneurs and get the incentives right so that they don't end up at 25, 35 disaffected and say what is going on and its stark when you have a government that has been corrupted and you see the great attention. i would argue that, you know, it is around the world withoutpg being able to deliver economic growth and reduce poverty. you are going to have these types of issues.popoqopopopgpgpg >> host: let's go back to theqoo 1980's. you are probably too young to remember. i'm sure you have read about it. in the 1980's everyone in america was terrified of japan
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incorporated. i think if the japanese had bought rockefeller and the other high-profile things like that and you mentioned some of that in your notebook, japan incorporated disappeared, and now we're sort of waiting for japan to be one of these debt dominoes hundred% of gdp. as china the new japanpgpg incorporated? poe wepo overstating whether0gpg people should be concerned aboug pg answer is i don't know because if i knew i would have treated that already.popopopo >> host: how can you be inpgpgpo washington without --0g0g0gpgpgg >> guest: good point. but my sensepo is that becausepg what can happen, by the way, weg know that japan was a housing crisis that led to a situation.o the property won again it is tho central america solve thesepo0gg problems because of the economio malaise thepg country suffered since thatpg time.0gpgpgpgpgpg it's now 30 years later and it can be longer-term and some
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sustained basis which is quite detrimental. we don't know. nobody knows how china is going to look and 20, 30, 50 years and i and quite optimistic for the things i felt like you are right there are challenges, short term the issues around poverty. they do have issues around demographics which i talked about. longer-term talked of the resource constraints. but like the fact of the matter in which the government is dealing with these things i think bodes well in that they are pleading a chess game multiple sort of moves ahead of the multiple of around the world. >> host: we have about five minutes left, so let's try to focus on some solutions that are u.s. audience might be interested in. you mentioned the housing crisis, and when i think of the housing crisis, it makes me really pessimistic. if a boy, she is a curmudgeon. but i like to the guy and more of a curmudgeon because we basically have the government through the federal reserve with
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artificially low interest rates, we then have the government for the government created entities, fannie mae and freddie mac tilted the playing field for the liquidity flowing into housing. we get a bubble caused by the government mistakes, and the answer in washington is more government. you have a history of being in the financial market. you know that moral hazard is critical and that this pricing and misapplication of risk is a very misguided approach, but it seems when washington does something wrong the answer is always for washington to do something else wrong. my parents told me do two wrongs don't make it right. >> guest: lots of things to that. first of all, if the united states government has done nothing around the financial crisis in the situation that this country and the world would have faced would have been undoubtedly much worse and i am not a believer in the big government and see what it can do to the whole economy to look
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around africa. it can be incredibly damaging. but i think we have to acknowledge the government needs to step in and things have gotten out of control and the effect would have been incredibly damaging. that being said coming back to the comment we have to start from where we are and not where we would like to be the effect of the matter is we have a lot of foreclosures and issues in the economy still. i believe the issues around the long term that need to be dealt with are not being dealt with on the feet to satisfactorily. the gdp to go towards science and technology issues around 45 billion plus, all of them is nice but i think the united states has to be more aggressive in terms of addressing the fact she's on this economic path. i also think a lot of americans don't understand what the
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implications of what's going on our for america long term. maybe they don't care. i think they care which is why i wrote this book, and i do think that growing up in africa during the 1980's during the structural adjustment period policymakers said it's going to stink. it's going to be hard but this is something we have to do in order to be viable in the long term and i think it is essential that they explain that to americans. >> host: you're not by chance a tax resident in the united states? i had a feeling we were addressing these things. let me ask you we are in the middle of a fiscal fight in washington. the last ten years the federal government budget has gone from 1.8 trillion to 3.8 trillion. more than double in ten years. dow we are having a fiscal side of that 3.8 trillion, the house wants to cut 61 billion the special-interest in washington are acting like that is ripping apart the social safety net.
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if the u.s. can't travel 61 billion from the $3.8 trillion budget doubled in just ten years is there any hope we will get our long-term fiscal house in order? that isn't even getting into the fact we spend too much on consumption and transfer spending and as you point out there are issues about the capitol spending that are getting squeezed out. is there any hope? >> guest: i hope there is because if there is and it's not just the u.s. in for a wild ride. it's the whole world. again, we emphasize we need the u.s. to get it right. i am not sanguine because i read the paper and i see the house and republicans talking about 61 democrats talking about six i'm like they are not even near each other in this threat. >> host: or near the numbers. >> guest: exactly. and of course not be anywhere near where they should be. yes it isn't a comfortable feeling but again, i think
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unfortunately the politics have a stranglehold. remember the politicians respond to the average individual's and what they want and the should be responding and at the same time policy makers should be listening to what the average person understands to be the issues. if people say less than we are willing to sacrifice, and there is evidence of that. christie in new york has shown already -- new jersey, has shown already how there might be an appetite for people to cut back on spending and the same with rubio, there are data plans to see perhaps people are willing to say ghosh we do need cuts so that things can do longer-term. >> host: i suppose on the semi optimistic note -- >> guest: i am optimistic americans will get it right. >> host: i hope you're right. i want to thank you for being here. the book how the west was lost, lots of good data and contentious ideas and proposals. thank you very much for being with us and thank you for

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